Welcome to HL's reimagined News, Insights and Research experience. Find out more

Share research

British American Tobacco - Tadeu Marroco replaces CEO Jack Bowles

BAT's CEO, Jack Bowles, is stepping down from the Board to be replaced immediately by Group Finance Director, Tadeu Marroco.

No recommendation - No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Prices delayed by at least 15 minutes

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment, and pension rules may have changed since then.

British American Tobacco's CEO, Jack Bowles, is stepping down from the Board to be replaced immediately by Group Finance Director, Tadeu Marroco.

The release highlighted some of Mr Bowles achievements since the company unveiled its latest strategy in 2019. These include the return of over £20bn to shareholders and the performance in New Categories division, which is expected to reach profitability earlier than initially expected.

The shares were trading flat following the announcement.

View the latest BATS share price and how to deal

Our view

Global tobacco consumption has been in decline for decades. This looks set to be an ongoing trend for the new CEO, Tadeu Marroco, to contend with. With over 30 years under his belt at the company, including the last three on the Board, we're not expecting any radical changes to strategy.

BATS is a juggernaut, and despite industry challenges, market forecasts expect revenue to continue to inch towards the £30bn mark over the next couple of years. That scale combined with incredible pricing power has resulted in operating margins other consumer goods companies can only dream of. And, with relatively low capital requirements, the group's delivered prodigious amounts of cash despite falling volumes.

Much of that cash is currently tied up in stabilising the balance sheet, and debt reduction is becoming a bigger priority for management. That's behind the decision to pause the share buyback programme, which has dampened investor sentiment. BATS' cash flows still leave room for dividends, and the track record here is formidable. Remember though, no returns are ever guaranteed.

BATS is notable for its significant emerging market exposure, and has been enjoying top line growth in all markets except its largest the US, where it also has a strong position. So far BATS has been able to push up prices, launch new products and grow margins. But with US smokers starting to focus on value, profit growth may become more challenging in 2023.

BATS' New Categories like vapes and heated tobacco are growing very quickly. The division is loss making, but those are reining in and profits are expected to start in 2024. One risk to these products' success is the prospect of further regulatory restrictions. This risk and the core business being propped up by a declining industry explains BATS' valuation, which is significantly below its longer-term average.

The other important thing to consider with tobacco stocks is that many institutional investors can't, or won't, invest in the sector. That can keep a lid on demand, and therefore valuation. News of a hefty $635m settlement with the US authorities over historical dealings with North Korea, has seen the sentiment come under further pressure. With most of this penalty already accounted for in last year's costs, we're not overly concerned.

A key attraction for investors is likely to be the 9.2% prospective yield, one of the highest in the FTSE 100. Analyst forecasts suggest this year's dividend payments are 1.6 times covered by free cash flow which provides some comfort that the yield is sustainable. We stress however, that no dividends can ever be guaranteed. For investors looking for more blue-sky potential, BATS is one of the more exciting names in New Categories of tobacco products, but whilst that part of the business is still loss making, we would urge caution.

BATS key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

Latest from Share research
Weekly newsletter
Sign up for editors choice. The week's top investment stories, free in your inbox every Saturday.
Written by
Derren Nathan
Derren Nathan
Head of Equity Research

Derren leads our Equity Research team with more than 15 years of experience in his field. Thriving in a passionate environment, Derren finds motivation in intellectual challenges and exploring diverse ideas within his writing.

Our content review process
The aim of Hargreaves Lansdown's financial content review process is to ensure accuracy, clarity, and comprehensiveness of all published materials
Article history
Published: 15th May 2023